2/09/2011 @ 6:00PM

Can Fiat's First Lady Make It In America?

When word spread that Fiat, the Italian carmaker, was returning to the U.S. after a 28-year absence, Laura Soave, the brand’s new North American head, was inundated by advertising agencies hoping to win Fiat’s business.

But the ad pitches made her cringe. “Every single one of them used Italian flags, the Leaning Tower of Pisa and an Italian accent when they were reading the storyboard to me,” she said. “It was painful.”

To Soave, a first-generation Italian-American who spent her childhood summers tooling around Italy in her family’s Fiat, such stereotypes are no more symbolic of Italian culture or cars than an episode of The Sopranos or Jersey Shore.

Reintroducing Fiat cars to Americans is an intensely personal mission for the sprightly 38-year-old marketing whiz whose knack for tapping into consumer lifestyles outside of traditional advertising venues caught the eye of Sergio Marchionne, the chief executive of both Fiat Autos SpA and Chrysler Group.

“She’s the most nontraditional auto person around,” said Marchionne, the workaholic boss who lured her away from Volkswagen last year after a long career at Ford Motor. “She sees cars in a different way than most automotive executives,” who, he said, are sometimes blind “because of the engineering bias associated with what they do.”

By handing her the keys to Fiat’s brand-new North American business, Marchionne entrusted Soave with a crucial element in the risky alliance between Fiat and Chrysler he hopes to turn into an automotive empire on the scale of Toyota, General Motors and Volkswagen.

Soave won’t have it easy. Her first assignment is to launch the pint-size Fiat 500 minicar to a nation of SUV drivers through a dealer network that does not yet exist.

The 500, a modern remake of Fiat’s iconic Cinquecento (first introduced in 1957), was celebrated by the automotive press as Europe’s car of the year after its debut in 2007. Since then Fiat has sold more than half a million copies in 80 countries. But the U.S. is an entirely different market. The 500 will need its considerable European charm to overcome Americans’ aversion to itty-bitty cars, not to mention their lingering memories of Fiat’s shoddy reputation for quality. Then there’s the flood of small, high-mileage cars from other manufacturers hitting showrooms in the next couple of years (see “Small Is Big”).

“We’re a new brand. People don’t know who we are,” Soave says. She’s bypassing national TV commercials and banner ads on websites like Facebook. Instead, Soave is taking the 500 to hip spots like cappuccino bars and art exhibits, where its stylish, modern Italian flair will blend in.

In December, for instance, Fiat made a splash at the prestigious Art Basel in Miami by inviting artists to use hoods and doors of the 500 as their canvas. “That event alone captured several hundred hand-raisers,” Soave said. In March Fiat will sponsor Fader Fort, an annual four-day festival for up-and-coming musicians, in Austin, Tex.

Such creative events fit well with Fiat’s plan to let buyers personalize their vehicles by choosing mix-and-match paint colors and interiors. But the 500 will play in an increasingly crowded field. There is only one so-called A-segment car–the Smart ForTwo–for sale in the U.S. now (and it’s hardly a barn burner, with sales of fewer than 6,000last year). In the next year or two it’ll be joined by at least seven new competitors, including the 500 and the Chevrolet Spark. The slightly larger B-segment, already populated by the Toyota Yaris and Ford Fiesta, is growing, too, with new or redesigned models coming soon. By 2013 combined sales volume in the two segments is expected to hit 970,000, up from 400,000 in 2010, says IHS Automotive.

But who will buy them? Unless gas prices spike or the government starts handing out incentives, IHS’ Rebecca Lindland says, there may not be much demand for all these tiny cars: “These vehicles have no track record in the market, but manufacturers have to bring them out to meet the new fuel economy rules.” Fiat aims to sell 50,000 this year, and 75,000 to 80,000 annually after that. Lindland, who likes the Fiat 500, is nonetheless skeptical.

Fiat’s closest competitor is likely the Mini Cooper, from BMW, another iconic minicar reborn. BMW sold fewer than 46,000 of them last year. But the 500 is priced almost $5,000 below the Mini’s $20,100 starting price. The Fiat 500 Pop, with a manual transmission, starts at $15,500. The midlevel Sport costs $17,500, and the top-of-the-line Lounge, with an automatic transmission and glass roof, starts at $19,500. All are equipped with seven standard airbags and an innovative four-cylinder engine that produces 101hp and gets 38mpg on the highway while cutting CO2 emissions by 10%. The two higher-priced models feature nice add-ons like a USB port and Fiat’s hands-free communications and entertainment system.

To allay concerns about reliability–Fiats still rank near the bottom of owner-satisfaction surveys in Europe, and “Fix It Again Tony” remains lodged in the memory of potential American buyers–Fiat has included a 50,000-mile warranty on the 500 and free maintenance for three years.

More Fiats are in the pipeline. A convertible 500 goes on sale this spring, followed by a high-performance Abarth version in early 2012 and a battery-powered electric 500 by the end of 2012. Chrysler and Fiat are now collaborating on a fifth model, a four-door crossover that will be slightly larger than the 500 but based on the same architecture. It will be sold under both the Fiat and Jeep brands. That’s the beauty of Fiat’s partnership with Chrysler, says Marchionne. Engineering costs are spread over more vehicles.

Marchionne had long wanted to bring Fiat and its Alfa Romeo luxury brand back to the U.S.; Chrysler’s 2009 bankruptcy crisis presented the opportunity. With the U.S. Treasury providing $8.1 billion in crucial financing, Fiat agreed to share missing small-car-engineering expertise with Chrysler in exchange for an equity stake of up to 35% and management control.

“It was an incredibly risky barter for everybody at the table,” said Marchionne, noting that the Obama Administration was prepared to let Chrysler fail. “I risked everything and got 35% of something that was worth nothing.” The reward would come only if he could fix Chrysler, pay off the government loans and take it public again.

But Marchionne had a grand plan in mind: By saving Chrysler, he could also save Alfa Romeo. Though the brand is well-known for its Formula One racing heritage (and its starring role alongside Dustin Hoffman in The Graduate) Alfa Romeo has been losing money for years, he said.

“The real opportunity for us is to try and take this architectural development that we’ve done in the U.S. (for small and medium cars) . . . and use that basic architecture to develop the next evolution of Alfa Romeo and really turn it into a global brand,” Marchionne explained. If Fiat had no engineering partner to share the cost of vehicle development, fixing Alfa would be impossible, he said. Chrysler, too, needed a partner to share investment costs.

Over the long term Marchionne expects those jointly engineered architectures to be the source of an array of small cars and crossovers selling in huge volumes under multiple brands around the world. The first U.S. vehicle will be a replacement for the Dodge Caliber, due at the end of 2011, followed by a compact Chrysler sedan and a replacement for the Jeep Compass, all sharing the same underpinnings.

But first Fiat needs to lay down roots in the U.S. The key was gaining access to Chrysler’s 2,300-dealer distribution network through the bankruptcy deal. Soave selected 130 of them to receive a Fiat franchise but is requiring them to build separate facilities for the 500 and its kin. Some are building from the ground up; others are converting empty stores that once housed Saturn or Hummer dealerships.

Already the launch is off to a bit of a rocky start. While Fiat is sticking by its goal to sell 50,000 of the Mexican-built cars in North America this year, the new dealership network isn’t even up and running yet. The first of the 130 Fiat “studios”–don’t call them showrooms–opened this month in California. Problems with permits and bad weather in the Northeast have put construction projects behind schedule. Soave expects to have 40 to 50 Fiat stores open by March, mostly on the East and West coasts, and most of the rest operating by the end of the year.

Soave has a clever distribution plan in the meantime: home delivery. A Fiat specialist–the word “salesperson” is banned, too–will offer to bring the car to the first 500 buyers, all of whom placed their orders last summer. That kind of service will help in the long run, she figures.

“With any new brand, it’s important to build a relationship–to put a face with the brand,” says Soave.

Perhaps no one is better suited for the challenge of reintroducing Fiat to the U.S. than Soave, who grew up bridging the Italian and American cultures. As a child she wanted nothing more than to be “American,” like the rest of the kids in her suburban Detroit hometown. But her Italian-born parents clung to their culture, speaking Italian at home and reading Italian-language newspapers.

“I grew up fighting my parents and my heritage,” recalls Soave. “Every summer they dragged me to Italy, and all I wanted to do was go to Disney World.” Recently, while cleaning out her grandmother’s belongings, her father came upon a faded photograph of Laura at age 3, sitting atop her uncle’s Fiat 500. “It’s destiny,” he told her.

Small Is Big

The Fiat 500 is one of the smallest in a parade of new subcompacts hitting U.S. showrooms. All have expressive styling, lots of high-tech features and gas mileage close to 40mpg. Automakers have to sell them to meet tougher fuel economy laws. But do Americans want them? Gas prices will provide the answer.